Highmark invests $475M to acquire failing hospital chain

When Highmark announced it was spending $475 million to acquire West Penn Allegheny Health System, which is currently $800 million in debt, many concerns were raised that the move inappropriately blurs the line between insurers and providers.

Highmark CEO Kenneth Melani quickly responded to allay any fears. Although the purchase of Pennsylvania's second-largest hospital chain "brings our expertise as an insurance company into the provider system," he said Highmark will keep its providers as a separate "self-sustaining division of the organization," because West Penn will still be expected to contract with rival health plans, the Wall Street Journal reports.

The long-term goal of the partnership between Highmark and West Penn is the creation of a new outcomes-based healthcare model with an integrated delivery and financing system, reports the Pittsburgh Post-Gazette. The deal allows Highmark to pay salaries to doctors and offer incentives for them to achieve quality and efficiency goals. Additionally, primary care doctors could coordinate patients' care and focus on preventive efforts, the WSJ notes.

"It's a big deal," said Len Nichols, a professor at George Mason University. "What it says is, both hospitals and health plans understand their future is tied to making our system more efficient."

The merger between an insurer and a hospital system has the potential to succeed, said Chris Calkins, a healthcare policy expert at the University of Pennsylvania, the Associated Press reports. "The linkage between insurance and provider networks essentially puts all the incentives in line with each other," Calkins said. "The key point is then you've got all of the data and you can begin to model 'OK, what really works to care for somebody with diabetes?' for example."

Highmark hopes to complete the acquisition in about six months, provided the state insurance department approves the deal, notes the Post-Gazette.

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